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treasury-departmentNEW YORK: US Treasuries prices slipped on Wednesday as investors took profits from a rally that pushed yields to their lowest since December.

Investors were evaluating how much further the move in bonds would last. Given that downward momentum in yields has been slow in recent days, buyers were not yet convinced they had to rush into the market.

Economists said recent US economic data suggest a sluggish start to the second quarter, one that will, even if temporary, hurt growth for the quarter overall.

That could let yields move lower, some traders said, though the market still needed data to confirm that a US economic slowdown has taken hold.

"With the Fed needing to address the jobs picture and housing looking ready for another dip as summer approaches, 10-year yields below 3 percent look likely given all the economic uncertainty," said Thomas di Galoma, managing director of government securities at Oppenheimer & Co in New York.

Benchmark 10-year Treasury notes, up 4/32 initially, erased that modest gain and slipped 11/32 amid some profit-taking, traders said.

Ten-year yields rose to 3.14 percent but stood at 3.10 percent early in the session, the lowest since early December.

Traders said the release of the minutes from the Federal Reserve's policy-setting committee in mid-afternoon will be the main event of the session.

When the Fed's second program of bond buying ends, "we will have a slowdown in economic growth," di Galoma said.

Still, the outlook for modest second-quarter US growth and talk of a possible restructuring of Greece's debt made an exodus from safe-haven US Treasuries unlikely.

Solid demand at a sale of German bonds offered more evidence that the possibility of a Greek debt restructuring was stimulating investors' appetite for safe-haven assets.

The cost of insuring Greek government debt against default rose on Wednesday.

David Ader, senior government bond strategist, CRT Capital Group, said even if the minutes reveal some hawkish views from some members of the Federal Open Market Committee, the correction in commodity prices and lackluster economic data had quieted some of the hawkish voices that were "particularly strident" in February and March.

Resistance levels corresponding to 3.14 percent on the 10-year yield are 0.50 percent for two-year yields and 1.80 percent for five-year yields, said William O'Donnell, head of US Treasury strategy at RBS Securities. Support for 10-year yields lies near 3.40 percent, he added.

Copyright Reuters, 2011

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